Bank shares suffer over Spain fears

Fresh fears about the Spanish economy triggered a pummelling for bank
shares today as markets failed to make meaningful gains following Greek
elections.

The FTSE 100 Index surged more than 1% in early trading after
pro-bailout party New Democracy secured a narrow win in yesterday's
vote, giving the embattled country more time to remain in the eurozone.

But any benefit proved short-lived as uncertainty over whether
the party would forge a coalition Government combined with a worrying
rise in Spain's borrowing cost to levels that forced Greece, Ireland and
Portugal to seek bailouts.

Royal Bank of Scotland was down 5%, with Barclays and Lloyds
suffering hefty falls, after Spain released data showing that the amount
of risky loans in its banks hit 18-year highs.

The FTSE 100 Index surrendered most of its earlier gains to
finish up 12.3 points at 5491.1. The Dow Jones Industrial Average in the
US was down 0.3% as the London market closed.

Michael Hewson, senior market analyst at CMC Markets, said: "The
reality remains that Greece's fiscal position remains unsustainable and,
more than that, the continued deterioration in the viability of Spanish
banks continues to worry markets."

Following the Greek elections, New Democracy, led by Antonis
Samaras, will seek to form a coalition government after it secured 29.7%
of the vote against anti-austerity group Syriza's 26.9%. World leaders
have urged Athens to act quickly.

Greece has had to adopt a range of far-reaching austerity
measures as a condition of receiving rescue loans from the European
Union and International Monetary Fund.

Without the EU bailout cash, Greece would go bankrupt and probably have to leave the 17-country bloc.

But uncertainty remains over how and when a coalition government will be formed - and whether it will last.

Graeme Leach, chief economist at the Institute of Directors,
said: "Don't be deceived into thinking the political and economic
fundamentals in Greece have changed with the election result.

"They haven't. The day of reckoning has merely been delayed slightly."

As well as Spain, Italy saw its borrowing costs push higher as well, with interest rates sitting above the 6% mark.